Policy Implications of Using Audits to Detect Bank Insolvencies
We present a model where a regulator has to decide how to tackle the potential insolvency of a bank in a context of asymmetric information. We show that, when it can audit the bank, the regulator is unlikely to choose a policy of bailout to induce the bank to reveal its insolvency. We show that, in some circumstances, the regulator can induce the bank to reveal its insolvency by threatening to randomize its decision to nationalize the bank.
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- Charles A. E. Goodhart & Haizhou Huang, 1999.
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- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Haizhou Huang & Charles Goodhart, 1999. "A Simple Model of an International Lender of Last Resort," FMG Discussion Papers dp336, Financial Markets Group.
- Philippe Aghion, Patrick Bolton & Steven Fries, 1999. "Optimal Design of Bank Bailouts: The Case of Transition Economies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(1), pages 51-, March.
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